UNITED NATIONS DEVELOPMENT PROGRAMME
PROJECT OF THE GOVERNMENT OF UKRAINE
Project Document
Project Number:
UKR/01/G31/A/1G/99
Summary of UNDP and Co-financing
Climate Change Mitigation in Ukraine
Inputs In US$ as per attached
budget(s)
Through Energy Efficiency in Municipal
District Heating (Pilot Project in Rivne) Stage 1
Inputs, Implementation Stage I
UNDP:
Starting Date:
May 2002
1G – Global Environment
End Date:
February 2004
Trust Fund
1,840,000
Duration:
22 months
Co-financing:
Country contribution
265,000
Project Site:
Rivne, Ukraine
External Investors/Financiers
25,000
Executing Agent:
NEX – State Committee for Energy Conservation
Co-financing sub-totals
315,000
Total Inputs
2,155,000
Implementing Agent:
NEX – State Committee for Energy Conservation
Total
2,155,000
ACC/UNDP Sector/Subsector:
Energy Planning and Conservation- Promoting
Environment and Natural Resources Sustainability
LPAC approval date: 25/10/2001
DCAS S Sector/Subsector:
Energy Conservation – Promotion of Sustainable
Energy and Atmospheric Quality
Primary Type Intervention:
Capacity Building – Capital Assistance
Sec. Type of Intervention:
Capacity Building – Technology Adaptation
Primary Target Beneficiaries: Target place (environmental habitat)–Natural features–Atmosphere;
local government/municipal services
Project Title:
Brief Description:
The proposed project addresses a key issue in the reduction of greenhouse gas emissions through large-scale
improvements in energy efficiency in Ukraine's communal heat supply sector. These improvements will result from a
four-part approach: (1) capacity building to create the basis for systematic energy efficiency activities at the local
level; (2) an integrated approach of supply and demand-side improvements to achieve maximum fuel savings and
emissions reduction; (3) attraction of external investment resources for an energy efficiency program in a pilot city;
and, (4) project-specific replication measures including development of relevant procedures, guidelines, information
materials and their dissemination, and public awareness-raising through the involvement of NGO's, in particular those
concerned with environmental and energy efficiency problems.
The project consists of two main components: (1) establishment of the municipal energy service company (ESCO) and
(2) demonstration of the energy saving program. The potential municipality selected, in consultation with the
government and executing agent, is Rivne. Implementation of the energy saving program will be done in two phases;
(1) implementation of the demonstration program through funding available in this project and (2) implementation of
the city-wide energy saving program in Rivne and its replication to other cities through investments allocated in
addition. The full project is divided into the two stages. Stage 1 includes establishment of the municipal energy service
company (ESCO), demonstration implementation of energy efficiency measures, and part of project replication and
dissemination activities. Stage 2 starts upon successful completion of the Stage 1 and includes implementation of citywide energy efficiency investment program and larger replication activities. Reference to Stage II has been included in
this project document to provide information on the context of the larger project; however, the financial commitments
included in this project document are limited to Stage I activities only.
Approved on behalf of:
Signature:
Date:
Name /:Title
UNDP:
Douglas Gardner,
Resident Representative
UNDP
Government / Executing Agent:
State Committee of Ukraine for
Energy Conservation
Yuriy Shulga,
Chairman of the State Committee
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CONTENTS
A.
CONTEXT ................................................................................................................................... 3
A1. Description of the Sub sector .................................................................................................... 3
A2. Host country strategy................................................................................................................. 4
A3. Prior and ongoing assistance ..................................................................................................... 4
B. strategy for the use of undp resources .......................................................................................... 5
B1. Program strategy ........................................................................................................................ 5
B2 Expected end-of-project situation ............................................................................................... 9
B3 Target beneficiaries .................................................................................................................. 10
B4 Project strategy and implementation arrangements .................................................................. 10
B5. Reasons for Assistance from UNDP/GEF ............................................................................... 11
B6. Special Considerations ............................................................................................................ 11
B7. Coordination/management arrangements ................................................................................ 12
C. OBJECTIVES, OUTPUTS, INDICATORS AND ACTIVITIES ............................................. 13
D. INPUTS ...................................................................................................................................... 16
D1 UNDP/GEF Input ..................................................................................................................... 16
D2. Local input ............................................................................................................................... 17
D3. Main equipment ...................................................................................................................... 17
E. RISKS: ....................................................................................................................................... 18
F. PRIOR OBLIGATIONS AND PREREQUISITES: .................................................................. 19
G. MONITORING AND EVALUATION ..................................................................................... 20
H. LEGAL CONTEXT ................................................................................................................... 21
ANNEX 1. WORK PLAN ................................................................................................................. 22
ANNEX 2. BUDGETS ...................................................................................................................... 26
ANNEX 3. RIVNE ESCO FINANCING AND OPERATION SCHEME ........................................ 31
ANNEX 4. INVESTMENT DETAILS .............................................................................................. 32
ANNEX 5. TERMS OF REFERENCE.............................................................................................. 35
ANNEX 6. STANDARD BASIC ASSISTANCE AGREEMENT ................................................... 40
ANNEX 7. PROJECT PLANNING MATRIX .................................................................................. 41
ANNEX 8. INCREMENTAL COSTS ............................................................................................... 46
ANNEX 9. CRITERIA FOR CONTINUATION TO STAGE II: A CHECKLIST .......................... 52
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A. CONTEXT
A1. Description of the Sub sector
Ukraine is one of the least energy efficient countries in the world and has the greatest emissions
level per unit of GDP among CIS countries. A recent inventory estimated that total emissions from
Ukraine in 1990 were 246 million tons of carbon equivalent, placing it sixth in the world. Per capita
emissions of CO2 were 4.75 tons of carbon per year. This figure significantly exceeds the levels in
most European countries and is also one of the highest in the world.
Problems in Ukrainian district heating are similar to those facing other countries of the former
Soviet Union. Sharp increase in fuel prices up to the world level with heat tariffs lagging behind
considerably worsened the financial state of all district heating companies. Lack of the funds for
modernization of generating capacities and heat networks impacted the level of service, which in
combination with consumers' lower ability to pay significantly reduced payments collection level.
Heat supply infrastructure is operated beyond the service life and requires large investments for
maintaining it in operating condition and covering existing heat demand.
At the same time, it is this inefficiency of existing heat supply and consumption systems that creates
significant potential for fuel and energy saving, which increases interest to this sphere in connection
with environment protection problems. Heat supply in the buildings sector accounts for
approximately 15% of all fuel consumed in Ukraine, and there is a huge potential for energy
efficiency improvement in this sector illustrated by the following figures. Specific fuel consumption
for heat generation in communal energy sector of Ukraine is 0.180-0.200 t.c.e. per 1 Gcal compared
to 0.150-0.160 t.c.e. in Western countries. Specific heat consumption for heating and hot water
supply of Ukrainian buildings is 1.5-2 times higher than in Western countries with similar climate
conditions.
High energy intensity of municipal heat supply in Ukraine is a very serious problem that has the
following important implications:
 growing dependence on external fuel supplies (mainly from Russia) purchased at world prices;
 high fuel component of heat tariffs and consequently high level of tariffs themselves,
overstraining the budgets of most families and leading to significant non-payments by
households;
 higher than necessary consumption of fossil fuel by utilities, with a considerable potential for
fuel saving and corresponding greenhouse gas (GHG) emissions reduction.
There exist a number of barriers that hinder supply and demand side energy efficiency improvement
in district heating systems. These include: macro-economic conditions (such as high taxes and
unstable taxation policy, unstable local currency), inconsistency of regulatory and legal policies,
non-payment crisis, imperfect pricing policy, institutional weaknesses, ownership inefficiency, lack
of information and about existing opportunities for energy efficiency and relevant experience, high
transaction costs for relatively small energy efficiency projects, unsatisfactory financial state of
district heating companies, consumers and local budgets, difficulties in arranging financing for
efficiency projects, lack of capacity and experience in preparing, implementing and managing
energy efficiency projects, technical deficiencies of heat supplier and consumer systems, absence of
incentives to energy saving for majority of heat consumers.
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Increased energy prices in the Central and Eastern European countries after the collapse of the
Soviet Union and development of market economy opened opportunities for energy service
companies that reduce energy costs for their clients and reimburse themselves from the savings
produced. ESCO business is also appearing in Ukraine. There already exist a state-owned company
UkrEsco, and several private ESCOs, which is an indication that there is a healthy market for
ESCOs in the country.
A2. Host country strategy
Improvement of municipal district heating energy efficiency on both supply and demand side is an
important development objective pursued by Ukrainian government. Reaching this objective would
contribute to lower dependence on imported fuel and reduction of GHG emissions, and have a
significant social impact. Ukraine's strategy in improving the efficiency of its economy in general
and district heating sector in particular is reflected in a number of legislative and regulatory
documents, such as the Law of Ukraine "On Energy Conservation" (1994), National Energy
Program of Ukraine (1996), Comprehensive National Program on Energy Conservation (1997,
revised and supplemented in 2000), Decrees of the President and the Cabinet of Ministers of
Ukraine. In communal heat supply, the target for state support is set for priority implementation of
the most cost-effective energy efficiency measures to achieve about 4.5 million t.c.e. fuel and
energy saving over the period 2000-2004, with estimated investment requirements of about UAH
1.5 billion (about $300 million) over the same period. Special attention is paid to improvement of
energy usage efficiency in public sector, with the target of 25% energy consumption reduction by
public sector institutions, to be achieved by 2004.
Main directions defined by the government of Ukraine for fulfillment of the tasks on improvement
of energy efficiency include, among others, the following: economic incentives to introduction of
energy efficiency technologies at enterprises, improving taxation and tariff policy, promoting widescale application of leasing operations, obtaining investment support from the EBRD and other
sources, improvement of the efficiency of heat generation and delivery, mass-scale introduction of
energy metering, improvement of subsidy allocation mechanism to create incentives to energy
saving by subsidized households, awareness raising through mass media, etc. It is also
recommended to support commercialization of activities in the sphere of energy efficiency through
the usage of energy performance contracting and application of UkrEsco experience to expand the
activity on establishing energy service companies in the regions of Ukraine, involving in their
equity financing funds from local budgets and interested enterprises and institutions. It is
emphasized that changing situation in fuel and energy sector, such as emerging non-state ownership
and new economic relations require higher reliance on market rather than administrative methods,
and further reforming of this sector.
In the area of climate change, Ukraine's First National Communication to the United Nations
Framework Convention on Climate Change (UNFCCC) prepared in 1998 identifies improvements
in energy efficiency as one of the main mitigation options for reducing GHG emissions in Ukraine.
A3. Prior and ongoing assistance
There have been several recent activities in district heating and/or energy efficiency involving
international financial institutions (IFIs), first of all, three World Bank loans a EBRD loan.
In December 1998, the World Bank approved $200 million loan to Kiev district heating company
through the government of Ukraine for rehabilitation of Kiev heat supply system. The loan was
provided under a sovereign guarantee and local co-financing at $50 million. Project implementation
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is well under way. However, there was a significant delay between the loan approval and its
ratification by Ukrainian Parliament.
Another World Bank's loan finances demand-side energy efficiency under the Kiev Public
Buildings Energy Efficiency Project.. The loan in the amount of $18.3 million was approved by the
Bank in January 2000 and also required a sovereign guarantee. The Kiev Municipality serves as the
implementing agency for this project, which showed a good progress since the loan approval.
The third World Bank loan, for supply side energy efficiency, is provided for modernization of
Sevastopol district hating system. The loan in the amount of $28.2 million was approved in March
2001.
There are also two World Bank projects under preparation, aimed at improving district heating
systems in Kharkiv, Ukraine's second largest city, and Odessa, large city in Southern Ukraine.
Currently, full-scale feasibility studies financed by the grants from the U.S. Trade and Development
Agency are being prepared.
In 1998, the EBRD provided a sovereign loan of $30 million to establish the first Ukrainian ESCO,
UkrEsco, with the mandate is to identify and implement energy-saving investments in small and
medium-size enterprises and public sector institutions. UkrEsco is state-owned, and it has also
involved the participation of private sector operator, Bechtel and Econoler. UkrEsco’s start-up was
delayed significantly due to the need to obtain a sovereign guarantee. Despite initial delays,
UkrEsco has an active portfolio, which indicates that ESCOs can indeed operate in the Ukrainian
market. In fact, there are currently plans to privatize UkrEsco.
The experience of national and international partners indicates that there is a great potential for
successful supply and demand side energy efficiency projects in Ukrainian district heating. Major
barriers preventing realization of this potential are insufficient internal financing and lack of local
institutional capacity to identify, prepare and implement bankable projects.
B. STRATEGY FOR THE USE OF UNDP RESOURCES
B1. Program strategy
The overall project strategy is to promote municipal energy efficiency in Ukraine, through
demonstration schemes in a pilot municipality and to facilitate the replication of successful
experience in other medium and large-sized Ukrainian cities. This will be done by reducing major
institutional and financial barriers (see Section A.1) at municipal level.
Experience gained by UNDP and other donors in Ukraine and in the CIS region shows that many of
the barriers to energy efficiency improvement, particularly a lack of relevant capacity, can be
mitigated by adopting a municipal (or local) approach. This approach also allows the forging of
local partnerships and increased ownership that are critical for successful implementation. This
project aims to create an enabling environment for implementation of municipal energy efficiency
initiatives in a pilot city while reducing green house gas emissions. Positive results and experience
gained in the course of the project will be replicated in other cities of Ukraine.
Accordingly, the project will focus on capacity building at the municipal level through the
establishment of a municipal energy service company (ESCO). While capacity building will focus
on institutional requirements, it will also be linked to the phased implementation and demonstration
5
of the municipal energy saving program. All these will include district heating supply and demand
side energy efficiency activities on a sustainable basis. The experience in developing the
institutional capacity and demonstration schemes for energy efficiency will be further utilized, as a
second phase of assistance, to launch a city-wide energy efficiency program and, as mentioned, in
replicating the experience to other cities in Ukraine.
The pilot municipality, which has been selected in consultation with the government and executing
agency, is Rivne. The full project is divided into the two stages. Stage 1 includes establishment of
the municipal energy service company (ESCO), demonstration implementation of energy efficiency
measures, and part of project replication and dissemination activities. Stage 2 starts upon successful
completion of the Stage 1 and includes implementation of city-wide energy efficiency investment
program and larger replication activities. The duration of the first stage is expected to be 12 months
and the second stage 46 months that follow the completion of the first stage.
Transition to the Stage 2 of the project is conditioned on successful fulfillment of the Stage 1
objectives and milestones. Major results to be achieved at the Stage 1 include fully functional
municipal ESCO working on cost-recovery basis with its district heating supply and demand side
clients, successful implementation of a demonstration project (from both technical and institutional
viewpoint), and financial commitments for the Stage 2 in the ratio of at least 3:1 to expected
UNDP/GEF financing. Preparation of the brief and project document for the Stage 2 project will
begin at the end of the Stage 1 in coordination with UNDP and national executing agency, and with
involvement of the project team that worked on the Stage 1 implementation. Major issues to be
developed for the Stage 2 include: exact scope of UNDP/GEF participation in the city-wide energy
efficiency program, provisions for usage of UNDP/GEF grant funding and arrangements with other
co-financing parties, detailed project replication plan. Prior to Stage 2 of the project, which is to be
funded as a separate UNDP/GEF project that must be approved by the GEF Council, the results of
the Stage 1 project will be verified through an independent technical and financial review. A
checklist of criteria to be considered prior to continuation to Stage II is provided in Annex 9.
It is also the strategy of the project to ensure result-based annual and quarterly work planning and
progress reporting. A performance and impact monitoring system will be developed to closely
monitor and evaluate the implementation process.
[a] Establishment of a Municipal ESCO in the city of Rivne (Stage1):
The main project focus is on local capacity building through creation of a municipal ESCO, which
will provide organizational basis for conducting energy efficiency activities at the municipal and
regional level. The role of the ESCO is to design, realize and finance all necessary and cost
effective investments in the municipal buildings, the district heating network or other energy
consuming local facilities through energy performance contracts (EPCs) or other applicable
contracts, aimed at providing up-front investments, reducing the facilities' energy, operation and
maintenance costs, and reimbursing the investments through a portion of the savings actually
realized. The ESCO presents the most effective way for systematic energy efficiency activities at
municipal level because it is oriented for operation with numerous clients of various types,
possesses necessary expertise for projects preparation and implementation, is quick and flexible in
making decisions about financing the projects and is intrinsically interested in multiplying energy
efficiency activities through expansion of its customer base. The ESCO reduces transaction costs
and can tackle a large number of similar and relatively small-scale projects that could not be
financed separately using traditional approach.
6
The ESCO in the city of Rivne will begin as a pilot municipal company. During the implementation
process, alternative institutional options for the involvement of external investors will be explored
and considered. As a first step in setting up the ESCO, an energy office will be established at the
municipality with the support of the project. Local staff will be selected and receive training in the
course of implementing the demonstration project (see below). In parallel, local business
environment will be analyzed in detail with regard to important legal and fiscal issues for ESCO
operation, and necessary legal documents and operational procedures will be developed. Options for
sustainable ESCO operation will be considered based on existing experience of financing district
heating efficiency improvements in Eastern and Central Europe and former Soviet Union.
It is planned that Rivne ESCO will be registered as a communal joint-stock company with
participation of the regional government, municipality and the district heating company. However,
operation scale for such purely communal ESCO is limited by financing capabilities of local
budgets and heat supplier. In order to increase the financial capacity of the ESCO for the city-wide
investment program, the strategy is to involve participation of private sector investor(s) with
relevant experience, mobilize interested international financial institutions (IFI), tap into local
resources and implement cost-recovery schemes for its services. For this purpose, the project will,
through participatory processes, develop the institutional framework for a self-sustaining municipal
energy company. As required, the project will conduct full-scale feasibility study and prepare
necessary materials for mobilization of local resources, cost recovery schemes and for loan/equity
approval processes.
In order to ensure that the institutional basis for sustenance is established, the project will provide
its assistance to the Rivne municipality based on a “Terms of Partnership”. The Terms of
Partnership will specify the obligations to be met by each partner. Besides the assistance to be
provided by the project, as provided for in this document, such a partnership arrangement will
include the mobilization of local resources and linkage building of the regular initiatives of the
municipality on energy development with the initiatives to be undertaken by this project.
[b]
Demonstration of the Energy Saving Initiative (Stage 1):
The strategy is to implement the demonstration scheme in a typical sector of the Rivne city district
heating system. The selection will be done based on consultations with the municipal authorities.
The criterion for selection will include defining municipal neighborhood(s) that have the most
critical problems and also to cover demonstration of energy saving schemes in the distribution
system, public as well as residential buildings. Several measures that will be undertaken as part of
the demonstration scheme are:





Testing and refining the EPC mechanism and other ESCO procedures.
Introduction of the consumption-based billing in all demonstration buildings to provide
incentives for end users to regulate their heat consumption.
Streamlining the technical aspects of concurrent supply and demand side efficiency
improvements, verify cost performance of efficiency measures and thus reduce
implementation risk for the city-wide program.
Verification of the management and implementation capabilities through application of
energy saving initiatives.
Identification of important issues that should be included into the planning of full-scale
implementation.
7
Implementation of the demonstration schemes will be done in close partnership with the beneficiary
communities. For this, the intended beneficiaries will be mobilized and organized into “interest
groups” covering public (schools or health services), residential buildings or commercial buildings.
These “interest groups” can be developed in the form of “neighborhood committees”, for example
for residential buildings, to plan, manage and implement, through their ownership, the energy
saving initiatives. Thus, the selection of the project area (section of the heating system) will be done
based on the willingness of the beneficiary community to contribute and be part of the project. Such
an approach is very important from the perspective of ensuring successful implementation.
To achieve maximum fuel savings and emissions reduction, the municipal energy efficiency
program (see Annex 4 for details) will advocate an integrated approach of supply and demand-side
improvements. Efficiency measures will be installed at boiler plants, heat transportation system
(pipelines and substations) and buildings (public, residential and commercial).
UNDP/GEF support will cover the majority of demonstration project cost. In order to maximize the
resources available for expanding the project, proportional returns on UNDP/GEF funds for the
demonstration project and the city-wide investment may be placed back into the ESCO. This will
increase the equity of local stakeholders for subsequent investments in municipal sector efficiency
undertaken by the ESCO as long as resources remain over the course of the project period. It will
also be the intention of the project to mobilize local resources, including from the municipality and
from the participating beneficiary community who will benefit from improved services. Support to
commercial building will only be provided on a full cost recovery basis.
[c]
Phased implementation
implementation at the Stage 2:).
of
municipal
energy
efficiency
program
(full-scale
During Stage 2, the ESCO will perform a full-scale implementation of the city-wide energy
efficiency program, with the estimated cost of about $23 million. It will be financed using ESCO's
equity resources, UNDP/GEF grant funding, debt financing from IFI and commercial banks, and a
local ongoing financing (see Annex 2, Table 4 for financing structure details). The UNDP/GEF
grant funding under the investment program will finance the implementation of longer-payback
measures (like pipe replacement and measures in buildings), less economically attractive and more
risky for private investors. This will help to reduce the risks and ensure involvement of private
financing in the project.
Prior to Stage 2 of the project, which is to be funded as a separate UNDP/GEF project that must be
approved by the GEF Council, the results of the Stage 1 project will be verified through an
independent technical and financial review.
[d]
Project Replication Strategy (Stage 1 and 2):
The following essential barriers prevent wide-scale expansion of even commercially viable energy
efficiency activities: 1) lack of information about efficiency improvement opportunities and
difficulties in obtaining competent consultations; 2) lack of experience in establishing ESCOs and
their commercial operation based on EPCs; 3) insufficient experience in preparing bankable
projects in accordance with the necessary standards; and 4) lack of public awareness about the
environmental problems associated with fossil fuel combustion.
8
Replication measures will be conducted in several directions: informational, methodological, and
educational. Materials prepared for setting up of the Rivne ESCO (model EPC, analysis of legal and
fiscal issues, necessary local commitments to attract investors etc.) will be freely circulated and
provided to other municipalities willing to replicate the project. Information will be disseminated
through mass media, project web site, seminars, workshops and targeted consultations. Project
replication activities will be conducted with participation of the SCEC, Association of Ukrainian
Cities, leading Ukrainian NGOs dealing with energy efficiency and environmental problems.
Stage 1 will focus on producing and distributing a report on district heating energy efficiency
financing experience in Eastern Europe and former Soviet Union and its applicability to Ukraine's
conditions; creating a project website and publishing a brochure on project operations; and
disseminating project information through mass-media. Stage 2 will address improving awareness
of officials and population about energy and environmental issues, formation of favorable public
opinion, facilitation of access to informational and methodological materials, promotion of the
ESCO-approach to efficiency activities and facilitation of its setting up process achieved by means
of preparing and widely disseminating relevant informational, methodological, technical materials
and providing targeted consultations.
B2 Expected end-of-project situation
The expected situation at the end of the project's Stage 1 will be:
1. Necessary materials for municipal ESCO establishment and operation (model EPCs,
agreements, founding documents, operational procedures) will be prepared and ready for
dissemination.
2. The ESCO will be established and operating, having concluded EPCs with demonstration
project clients. Local capacity to identify, prepare, finance and implement energy efficiency
projects will be increased.
3. Full-scale feasibility study for city-wide energy efficiency program will be prepared and
participation of external investors/financiers negotiated.
4. Financial arrangements for the project's Stage 2 will be defined, including draft city-wide
energy performance contracts.
5. Demonstration project installations will be performed and consumption-based billing system for
all demonstration buildings introduced.
6. Report on district heating energy efficiency financing experience in Eastern Europe and former
Soviet Union and its applicability to Ukraine's conditions will be prepared and distributed.
7. Project web site created and brochure on project operation published
8. Project information disseminated through mass-media.
9. Energy saving verification procedures developed in accordance with the International
Performance Measurement and Verification Protocol.
10. Energy audits on demonstration project facilities conducted, baseline consumption and
emissions level determined and project impact calculated based on the latest verification data.
Draft technical report on energy savings and emissions reduction prepared.
11. Project implementation monitored and evaluated according to UNDP/GEF procedures.
At the end of the project's Stage 2, the expected situation will be:
1. Municipal energy efficiency improved through the integrated approach to supply and demand
side measures in the district heating system under city-wide investment program conducted by
the ESCO.
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2. Rivne ESCO will be operating on a self-sustainable basis, having involved additional financing
at the ratio of at least 3:1 to UNDP/GEF funding.
3. Other energy efficiency projects in the city/region for expansion of the ESCO's activities
identified and draft energy performance contracts prepared.
4. Better awareness of officials and population about energy and environmental issues, formation
of favorable public opinion, facilitation of access to informational and methodological materials,
promotion of the ESCO-approach to efficiency activities and facilitation of its setting up process
achieved by means of preparing and widely disseminating relevant informational,
methodological, technical materials and providing targeted consultations.
B3 Target beneficiaries
Target beneficiaries of the project include, first of all, Ukraine's government, as the proposed
project contributes to implementation of the national strategy of increasing the energy efficiency. A
direct beneficiary will be the State Committee for Energy Conservation responsible for
implementation of the national energy policy and promoting energy efficiency activities in Ukraine.
Local authorities, District Heat Supplier and the community of Rivne will benefit from reduction of
budgetary expenditures on energy bills of public buildings and on residential subsidies.
Establishment of a municipal ESCO will also increase local capacity to prepare bankable projects
and, in this way, facilitate the access to external financing sources. At the same time, it may provide
the most viable institutional mechanism as well. Expansion of energy efficiency activities also
contributes to development of the market of efficient equipment and technologies that is important
in Ukraine. Finally, the target beneficiaries must be seen in a global context, because climate
change is a world community concern. By implementing a measure to fulfill the commitments of
Ukraine to the UNFCCC, the project will contribute to the global effort to address climate change
and its adverse impacts.
B4 Project strategy and implementation arrangements
In 1995 Ukraine created a special ministry-level institution -- the State Committee of Ukraine for
Energy Conservation (SCEC) with the responsibilities of formulating and implementing the national
policy in the sphere of energy efficiency. The SCEC receives state budget funding for energy
efficiency and is responsible for directing it to priority financing of investment projects in this
sphere. In heat supply sector, most district heating companies are in communal ownership,
subordinated either to municipalities or regional (oblast) governments. The Ministry of Ecology and
Natural Resources is responsible for development and implementation of the national policy
regarding environmental issues in Ukraine. The State Committee on Construction, Architecture and
Housing Policy is develops building codes, norms and standards for district heating and defines
district heating tariff policy. A non-governmental organization, Association of Ukrainian Cities
helps to disseminate positive experience among the municipalities, including best practices in
communal district heating and in some regions, there is an ongoing process of privatizing district
heating and creating joint-stock companies. On the demand side, majority of public buildings
(schools, kindergartens, polyclinics, hospitals, cultural and administration buildings) are owned and
financed by municipalities. A significant number of public buildings are financed from the state
budget (in particular, higher education and healthcare) and from oblast budget (healthcare and
administration). In the residential sector, the majority of apartment buildings are owned by
municipalities, with ongoing apartment privatization. A significant number of buildings are owned
by housing cooperatives and emerging condominiums. Municipal budgets provide subsidies for
utility services to underprivileged households.
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B5. Reasons for Assistance from UNDP/GEF
Ukraine signed the UNFCCC in June 1992, ratified it on October 29, 1996, and became a Party in
August 1997. As a Party to the Convention, Ukraine has accepted a commitment to formulate,
implement, publish and regularly update national and (where appropriate) regional programs
containing measures to mitigate climate change by addressing anthropogenic emissions by sources
and removals by sinks of all greenhouse gases not covered by the Montreal Protocol. The
Government of Ukraine also signed the Kyoto Protocol in March 1999. The proposed activity is a
part of the Government’s strategy to fulfill its commitments to the UNFCCC while simultaneously
addressing local problems related to the inefficient use of fossil fuel.
As an economy in transition, and in accordance with its commitments to the UNFCCC, the
Government of Ukraine has requested support from UNDP/GEF to overcome barriers to the
measures reducing GHG emissions, such as improvement of energy efficiency and promotion of the
use of renewable energy technologies. Further consultations with the Government of Ukraine
identified the removal of barriers to the improvement of demand and supply side energy efficiency
in district heating systems as a priority area for GEF financing.
Operationally the project falls under the GEF Operational Program # 5, “Removing Barriers to
Energy Efficiency and Energy Conservation”.
GEF participation accounts for 21% in the total project cost and would ensure financial leverage at
the ratio of about 1:4.
B6. Special Considerations
As a result of the decline of the centrally planned economy and the privatization of many
enterprises, the role of national authorities and government bodies in Ukraine has changed. Many
observers feel that important energy efficiency actions in the future will come from local initiatives.
The authority to decide many issues in energy policy, tariffs, and energy regulation is increasingly
being turned over to regional and local governments. National laws have established general
guidelines, but local and regional authorities must then develop implementation mechanisms and
take the necessary actions to remove barriers to market-oriented activities.
Probably the most serious problem is a shortage of affordable financial resources for energy
efficiency investments. The situation in the Ukrainian banking sector is such that interest rates (1840% in US$ and 60-120% in local currency) are virtually prohibitive for energy efficiency projects.
Ukrainian commercial banks prefer to finance export-oriented and trading companies with shortterm loans. Usual loan terms last several months and do not exceed $100,000, requiring collateral of
about 200% of the loan amount. To overcome this barrier, different possibilities and financial
mechanisms have to be evaluated, including long-term revolving funds, guarantee funds, targeted
budgetary allocations, municipal bonds, energy service companies, vendor financing, possible loans
and credit lines by multilateral banks, various forms of involvement of foreign private investors,
equipment leasing etc.
To ensure financial returns on investments, the problem of non-payments must also be addressed.
Existing incentives for timely payments must be improved, and mechanisms to discourage the “nonpayment mentality” must be developed and adopted. Fuel prices have risen to world levels, and as
this cost burden is passed on to households, residents are hard-pressed to pay monthly heating bills
11
that approach 30-50% of their average monthly wage. In addition, social tensions are rising as many
people face delays in receiving their salaries or are unemployed. The payment issue is made worse
by the fact that hot water and heat consumption are still relatively high compared to many OECD
countries, but the existing bulk rate billing system provides no incentives for reducing hot water use
as a means of lowering the monthly heating bill.
Implementation of efficiency measures both at boiler plants and connected buildings are capable of
producing significant combined effect. Elimination of large consumer substations and installation of
individual heat controls and hot water equipment in buildings, together with adjustment of heat
output from generating capacities will also produce substantial heat energy savings both in heating
and hot water systems.
Over-centralization of heat supply sometimes results in a lower overall energy efficiency than
would be optimal from the technical, economic and environmental point of view. It is recognized
that for greater efficiency, more decentralized heat production could play a bigger role. On the other
hand, a major advantage of the centralized systems is the possibility for co-generation, which is one
of the most effective ways to use primary energy and to reduce the associated greenhouse gas
emissions. The possibilities for co-generation could eventually be used also in smaller systems,
which in principle work in a same way as previously planned big centralized combined heat and
power plants, but reducing the overall losses by being smaller and providing heat to some thousands
rather than tens or even hundreds of thousands of people. Another option is small autonomous gas
heaters and boilers, when, however, the possibilities for co-generation are lost.
All options for achieving maximum effect from combined supply-side and demand-side efficiency
improvements will be analyzed during project preparation phase.
The personnel of the local counterpart agencies are highly qualified to implement the various
activities of the project, but extensive training and access to the latest available information on
topics such as available new technologies, market oriented planning and operation practices, and
project financing (incl. support and incentives to attract domestic and foreign investments) is
essential.
B7. Coordination/management arrangements
The project will be executed by the State Committee on Energy Efficiency. The Executing Agent
will be guided by a consultative forum, in the form of the Steering Committee. The Steering
Committee will bring together representatives from:
State Committee for Energy Conservation (SCEC);
- United Nations Development Program;
- Ministry of Ecology and Natural Resources (Minecology);
- Association of Ukrainian Cities (AUC);
- Rivne Municipality;
- Arena-Eco NGO (lead implementing agency at the stage PDF-B).
The State Committee on Energy Efficiency, as the Executing Agent, will appoint the National
Project Director (NPD). The Executing Agent will be supported by a Program Management Unit,
consisting of a Program Manager, Program Assistant and short-term consultants, to successfully
implement the project. The Program Management Unit will be established as part of the State
Committee on Energy Efficiency in Kyiv with the assistance of UNDP. Besides supporting the
12
successful implementation of the project, the Program Management Unit will provide necessary
support in developing a coalition of partners, mobilizing resources and strengthening partnerships
with municipalities with the intention of disseminating project experience and replication. A
Project implementation at the municipal level will be based on a “Terms of Partnership”. Support
for capacity building will be provided in setting up the Municipal Energy Service Company Office,
including through its implementation of the demonstration schemes. In establishing the municipal
ESCO close cooperation will be ensured by the project management with the municipality of Rivne
and the district heating company as well. During the course of implementation, through capacity
building, it is the intention of this project to sustain the operations of the municipal ESCO as a selfgoverning and self-financing entity whether in the municipal, semi-government or private sector.
The main responsibilities of the national project director are: 1) ensuring effective communications
between the partners and monitoring of progress towards expected results; 2) convening and
chairing PSC meetings; and 3) reviewing quarterly work plans and requests for funding submitted
by the project manager. Project Manager and Project Assistant for the Project Support Office in
Kyiv will be selected on the competitive basis and appointed by SCEC in consultation with UNDP.
Staff for Project Implementation Office in Rivne will be selected on the competitive basis and
appointed in consultation with Rivne municipality and UNDP. Capacity of the Project
Implementation Office in Rivne will be strengthened through training conducted by project
management as well as by subcontractors. Similarly, specialized technical assistance will also be
provided through subcontractors determined by tender and subcontracted in accordance with UNDP
procedures.
Project replication and monitoring activities will be managed by Project offices in Kyiv and Rivne
under the supervision of the national executing agency and in coordination with the PSC, UNDP
Country Office, Minecology, AUC, and other project participants. Monitoring will be performed
during the whole project period as presented below and will follow the guidance provided by the
UNDP/GEF Information Kit on Monitoring and Evaluation. In order to ensure high quality
evaluation of the project outcomes independent technical and financial evaluators will be
subcontracted.
C. OBJECTIVES, OUTPUTS, INDICATORS AND ACTIVITIES
Development objective
The Objective is removing existing barriers to implementation of integrated approach to supply and
demand side energy efficiency improvements to district heating systems in Ukraine, thereby
reducing associated greenhouse gas emissions. The objective is to be reached by means of achieving
the following immediate objectives:
Immediate Objective 1:
Immediate Objective 1 is to strengthen local institutional capacity in the city of Rivne for
identifying, preparing and implementing supply and demand side energy efficiency projects in the
district heating system.
13
Success Indicators:
 By the end of the month 4 of the project, a prototype municipal ESCO office is established in
partnership with the local authorities.
 Analysis of the business environment performed and necessary materials for pilot municipal
ESCO establishment and operation prepared by the end of the month 7 of the project.
 By end of this pilot phase, a sustainable municipal ESCO is fully functional based on costrecovery from its services and investments from the government, local authority and private
sector.
Output 1.1:
Municipal ESCO is established.
Activities for Output 1.1:
1.1.1.
1.1.2.
1.1.3.
1.1.4.
Output 1.2:
Compile the results and analysis of work to date conducted in the EE/NIS region on
district heating financing.
Perform necessary analysis of legal and fiscal issues regarding ESCO operation in
the country, develop possible local regulatory changes for improvement of ESCO
business environment, and determine the ESCO operational setup.
Negotiate the details of municipal ESCO establishment with local project
stakeholders (municipality, regional government, district heating company).
Prepare supporting materials for ESCO operation, including model energy
performance contract, other legal documents, operational procedures and draft
founding documents.
Municipal ESCO developed as a self-sustaining entity.
Activities for Output 1.2:
1.2.1
1.2.2.
1.2.3.
1.2.4.
1.2.5
Develop capacity of the local staff, including on energy audits.
Develop and formulate necessary commitments to be made by the local stakeholders
for attracting external investors, and study options for increased internal financing.
Prepare and distribute to possible investors/financiers project description materials
and requests for participation.
Develop a full-scale feasibility study and prepare supporting materials for
loan/equity approval process.
Conduct negotiations, select investors/financiers, develop and sign ESCO financial
agreements.
Immediate Objective 2:
Immediate Objective 2 is to develop viable approaches to sustainable energy saving or efficiency
through demonstration schemes in the pilot city for wider replication in Ukraine.
Success Indicators:
 Demonstration project is implemented and energy efficiency measures are undertaken.
 Regular investments made by the municipality for energy development and saving initiatives are
fully incorporated into the project initiatives during the first year.
 All beneficiary households in the selected residential areas fully participate in implementing
energy saving initiatives, including with their contributions.
14
 Beneficiary communities and the municipality experience savings in cost by the end of this
project.
 Demand for replication of the demonstration schemes in other municipalities significantly
increases by the end of this project.
 Total amount of investments obtained for implementation of city-wide energy efficiency
program.
Output 2.1:
District heating supply and demand side measures on demonstration project facilities are
implemented and consumption-based billing system for demonstration buildings introduced.
Activities for Output 2.1:
2.1.1.
Prepare working designs and plan for energy efficiency measures.
2.1.2.
Mobilize and organize participating officials of public facilities and beneficiary
communities of residential areas to undertake demonstration schemes.
2.1.3.
Support with energy efficient equipment and installation services.
2.1.4
Develop billing and accounting system, including software, for shifting to
consumption-based billing.
2.1.5
Implement demonstration schemes, covering distribution system as well as public
and residential facilities.
2.1.7.
Develop and undertake energy performance contracts for the heating system.
Output 2.2
Capacity for optimization of the integrated district heating system financing is strengthened.
Activities for Output 2.2:
2.2.1.
2.2.2.
2.2.3.
2.2.4.
Prepare capacity development plan for the municipalities to facilitate the shift to
consumption-based billing systems, introduction of regulatory changes to motivate
energy saving, adjustment of subsidy allocations, and other regulatory changes.
Making the materials prepared for setting up of the Rivne ESCO widely accessible
(including the model ESCO charter and foundation agreement, the model energy
performance contract, the analysis of legal and fiscal issues, the local commitments
necessary to attract investors, etc.).
Provide consultations to municipalities and district heating companies regarding
technical solutions, energy saving and emissions reduction potential for supply and
demand side energy efficiency improvements in district heating system, preparation
of bankable projects, and the ESCO approach to financing energy-saving project, and
policy reform issues.
Mobilize and organize beneficiary communities to plan, manage and implement
energy efficiency initiatives.
Output 2.3: Project experience,
disseminated for replication.
including
implementation
processes,
documented
and
Activities for Output 2.3:
2.3.1.
Document the experience of financing district heating efficiency in the EE/NIS
region and its relevance to Ukraine, and release in Ukrainian and English for key
target audiences.
15
2.3.2.
2.3.3.
Create the project web site and disseminate information about the project through the
internet and mass media.
Conduct seminars and workshops to provide targeted training for municipalities and
district heating companies.
D. INPUTS
D1 UNDP/GEF Input
Project budget estimates are presented in Annex 2. The UNDP/GEF input to the Stage 1 of the
project is $1,840,000 divided as follows:
a) Personnel
b) Subcontracts
d) Training
e) Equipment
f) Miscellaneous
$145,500
$964,500
$115,000
$595,000
$20,000
These figures provide indicative breakdown of costs and may have to be adjusted in the future
between the budgetary items within the fixed overall budget.
Between the project components it is distributed as follows:
 Rivne municipal ESCO establishment
 Demonstration project implementation
 Information dissemination/replication measures
 Monitoring and evaluation
$640,000
$900,000
$130,000
$170,000
Main expenditure items within each project component for the Stage 1 are:
Rivne municipal ESCO establishment:
 development of a full-scale feasibility study
 preparation of supporting materials for loan/equity approval process
 legal and fiscal analysis of ESCO business environment
 development of company's founding documents
 development of model performance contract
 preparation of other legal documents (collateral, leasing, trade credit agreements etc.)
 development of a set of operational procedures (energy audit, design, installation and
acceptance, verification, procurement, accounting etc.)
 selection of local staff and its training, including energy audits on demonstration project
facilities
 purchase of energy audit and office equipment
Demonstration project implementation:
 preparation of designs for energy efficiency measures
 purchase and installation of energy efficient equipment and materials
 procurement of billing and accounting software for shifting to consumption-based billing,
and necessary hardware
Information dissemination/replication measures:
 developing a report on DH financing experience in EE/NIS region and relevance to Ukraine
 creation of a web site for the project, publicizing project in mass media, conducting
seminars and workshops
16
 distributing ESCO establishment supporting materials
 providing consultations to municipalities and district heating companies
Monitoring and evaluation:
 measurement and verification of energy savings and emissions reduction from
demonstration project and preparation of technical report
 author supervision of working designs preparation
 collection of regular feedback from project stakeholders and all interested parties through
workshops, meetings, and questionnaires
 preparation of all necessary reports as described in Section G
D2. Local input
For the Stage 1 of the project, the Ukrainian project partners have agreed to contribute $265,000
(partially in-kind), to be provided from the following sources:
 Rivne Municipality
$70,000
 Rivne District Heating Company
$115,000
 SCEC (state budget)
$80,000
Demonstration project financing from the State Committee for Energy Conservation (SCEC) in the
amount of UAH 450,000 ($80,000) is provided from the state budget on application of the Rivne
Municipality.
These inputs will co-finance the following activities:
 Rivne ESCO establishment
$50,000
($25,000 from the municipality and $25,000 from the district heating company)
 Demonstration project implementation
$200,000
($40,000 from the municipality, $80,000 from the district heating company, and $80,000 from
the SCEC)
 Monitoring and evaluation
$15,000
($5,000 from the municipality and $10,000 from the district heating company).
The costs covered by local co-financing include:
 involvement of qualified specialists from relevant institutions to support project activities;
 office space for the prototype municipal ESCO office / ESCO;
 part of demonstration project procurement and installation costs;
 equity contributions of local project stakeholders for initial ESCO capitalization.
D3. Main equipment
Main equipment to be procured for the Stage 1 project activities is:
 for the demonstration project implementation: 1 modern boiler, 3 heat recovery units, 2
convective packages, 7 burners, 4 automation systems for boilers and auxiliary equipment, 1
boiler plant information system, 1 packaged water treatment system, 7 frequency converters for
electric engines of fans, ventilators and circulation pumps, 2 heat exchangers with automatic
controls, 3.2 km of pre-insulated pipes, 50 shut-off valves for pipelines, 1 automatic dispatch
management system, 21 heat meters, 8 building heating control systems; 1 server, computer,
modem and printer.
17

for the ESCO: clamp-on flow meter, thickness meter, leakage detector, 2 multi-channel data
loggers, portable computer, infrared thermometer, combustion analyzer, electricity multimeter,
anemometer, office equipment.
E. RISKS:
The crucial elements determining the success of the project are:
Financial risk, connected with the possibility that targeted participation of investors/financiers in
the ESCO and investment program may not be realized to the planned extent, which would mean
lower returns on UNDP/GEF funding in terms of GHG emissions reductions. This risk is mitigated
by structuring the project into the two stages described above and conditioning Stage 2 grant
allocation on successful completion of the Stage 1 activities.
Major indicator impacting the size of the Stage 2 investment grant will be the total amount of the
funds committed to participation in the project. It is anticipated that this participation would include
2-3 major investors in addition to the municipality and the municipal district heating company, that
these investors would be committed by month 18 of the project's operations, and that the ratio of
external funds to UNDP/GEF funds would be at least 3:1. Full amount of the UNDP/GEF $3.1
million Stage 2 investment grant will be allocated if targeted financing from other sources is
confirmed. In case if targeted level of ESCO equity/debt financing is not reached within the planned
period, the ESCO will proceed with smaller-scale investment activities. Actions (developed in
course of ESCO preparation) will be taken to expand internal financing for the project and attract
external investor through privatization of already operating municipal entity. The extent of the
UNDP/GEF Stage 2 support will depend on success of these actions.
UNDP/GEF investment grant usage risk, connected with considered involvement of private
investors in municipal ESCO, and possibility that the proceeds from this investment grant may go to
private sector. This risk is mitigated by addressing the contingent nature of the UNDP/GEF funds in
ESCO financial arrangements, meaning that the UNDP/GEF investment grant to local project
stakeholders is to be used for energy-saving projects and will not go into any profits made by
private equity investors. The mechanism to handle these funds will be developed and approved with
UNDP/GEF and local stakeholders.
Institutional risk, arising from the fact that the project is dealing with a subject area in which broad
consultations and involvement of all the relevant stakeholders are of crucial importance to make the
project a success. These include key government ministries, local authorities, heat supplier etc,
whose positions and expectations have to be taken into account during project implementation. The
project has addressed this risk by establishing the Project Steering Committee (PSC), thereby
seeking to facilitate active cooperation and coordination between the key stakeholders of the
project.
The following are the main risks and mitigation measures for investors/financiers that may be
involved in establishment of the ESCO and implementation of the energy efficiency investment
program.
Technical risk, or the risk of actual energy savings being lower than expected. It is mitigated by the
high level of expertise and conservative approach used in prepared technical estimates, as well as by
independent technical review of the pre-feasibility study estimates. Besides, the private investor of
18
the ESCO will be selected to have substantial experience in energy efficiency, which will reduce
technical risks to acceptable level.
Implementation risk, or the risk that the project will not be fully implemented even though
necessary resources will have been engaged. This may happen if implementation costs will prove to
be higher than expected. This risk is mitigated by accurate cost estimates based on the latest
quotations from suppliers and by 10% contingency added to cost estimates in the pre-feasibility
study. ESCO’s own experience is also a significant risk mitigation factor. Besides demonstration
project implementation will further reduce this risk by verifying the estimates and allowing
necessary adjustment of the full-scale program.
Credit risk is connected with the client's ability or willingness to meet its obligations on EPCs. To
mitigate this risk, ESCO can introduce sufficient securities into each EPC. As a risk mitigation
factor, municipal/regional authorities will make necessary commitments, such as keeping tariffs
unchanged during investment amortization period, ensuring full and timely payments on heat bills
of budgetary institutions and subsidies for residential consumers etc.
Price risk, or changes in prices for energy resources addressed by the project. This risk is mitigated
by the fact that the dynamics of gas and heat prices over the project period was estimated in a
conservative way. Based on its experience, the ESCO will introduce appropriate provisions into
EPCs with its clients to eliminate this factor of uncertainty.
Commercial risk is connected with the overall legal situation in the country and possible disputes
with clients in the course of ESCO operation. This risk is mitigated by the work to be performed
during the process of setting up the ESCO when the model EPCs complying with Ukrainian
situation will be developed, legal and fiscal issues will be addressed to elaborate the options for
repayment guarantees, currency exchange and transfer procedures, arbitration of disputes etc.
Currency exchange risk is associated with the purchasing power of the loans denominated in a
foreign currency, and hard-currency value of repayments collected in a local currency. To mitigate
this risk, the ESCO will likely start with shorter-payback EPCs; may try to stipulate hard currency
repayments in EPCs (which is difficult) or introduce additional margin into the cost of its services.
Political risk is connected with political changes at the state or municipal level that may adversely
impact operational environment for the ESCO. For possible investors/financiers this risk will be
substantially mitigated by IFI's participation in the project because of its political influence.
F. PRIOR OBLIGATIONS AND PREREQUISITES:
a)
Prior Obligations
Ukraine ratified the UN Framework Convention on Climate Change on 29 October, 1996. As a
party to the Convention , the Government of Ukraine has committed to formulate, implement,
publish and regularly update national and where appropriate, regional programmes containing
measures to mitigate climate change by addressing anthropogenic emissions by sources and
removals by sinks of all greenhouse gases not controlled by the Montreal Protocol and measures to
facilitate adequate adaptation of climate change.
19
b) Prerequisites
The Project Document will be signed by the representatives of the Government of Ukraine and the
UNDP. Assistance for the project will be provided only if the prerequisites stipulated in the project
document have been fulfilled or are likely to be fulfilled. When anticipated fulfillment of one or
more prerequisites fails to materialize, UNDP may, at its discretion, either suspend or terminate its
assistance. Main prerequisites related to the local project support are:
1) Cost-sharing as described in Section D (Inputs).
2) Materials developed under EBRD/TACIS UkrEsco effort (model energy performance contracts,
trade credit, leasing, collateral agreements etc.) are made available to the UNDP/GEF project
implementing agency to adapt them to Rivne ESCO situation and, in this way, reduce ESCO start
up time. The SCEC was a beneficiary of the support provided by EBRD/TACIS, and as an
executing agency for the proposed UNDP/GEF will also ensure that there is no duplication of effort.
G. MONITORING AND EVALUATION
Monitoring and evaluation activities follow the guidelines contained in the UNDP/GEF Information
Kit on Monitoring and Evaluation and will include:
a) Fulfillment of the standard UNDP/GEF procedures during the project cycle (Annual Project
Report, Tripartite Review, Project Implementation Review, Mid-term and Final evaluations,
Terminal Report and Audit).
b) Measurement and verification of energy savings and emissions reduction from demonstration
project and preparation of technical report on demonstration project results. The technical report
will present actual achieved energy savings and emissions reduction figures determined using
the International Performance Measurement and Verification Protocol developed by the U.S.
Department of Energy for energy efficiency projects.
c) Preparation of working designs for efficiency measures.
d) Monitoring to track the achievement of expected results during setting up of the ESCO,
arrangement of financing, operation of the ESCO.
e) Monitoring the progress in full-scale implementation of the municipal energy efficiency
program.
f) Collection of regular feedback from project stakeholders and all interested parties through
workshops, meetings, and questionnaires.
g) Preparation and submission of regular progress reports that will include the feedback collected
from project stakeholders together with indicators reflecting the overall performance of the
project and each of its components.
h) Supervision of project progress through regular meetings of the PSC.
Overall responsibility for monitoring and evaluation tasks will be assumed by the national executing
agency assisted by UNDP. The Project Manager will prepare regular reports on the progress of the
project and its constituting activities and submit the reports to the UNDP Country Office and the
national executing agency. Establishing a monitoring, evaluation and feedback mechanism for the
project components will be the task of the Monitoring and Evaluation Specialist (see Annex 5 for
the terms of reference) and will be developed in parallel with the start up of the project. Updated
information about the intermediate and final results of the project, as well as its overall progress,
will be disseminated to relevant stakeholders through a number of channels, including a project
homepage to be established on the internet.
20
The project will be subject to tripartite review once every 12 months, the first such meeting to be
held within the first 12 months of the start of the Stage 1 implementation. The project manager, in
consultation with the UNDP program officer in Kiev, shall prepare and submit to each tripartite
review meeting an Annual Project Report. A Project Terminal Report will be prepared for
consideration at the terminal tripartite review meeting. It shall be prepared in draft sufficiently in
advance to allow review and technical clearance by the executing agency at least four months prior
to the terminal tripartite review. The Government will provide UNDP with certified periodic
financial statements relating to the status of UNDP/GEF funds, including an annual audit of these
financial statements according to the UNDP procedures. Project objectives, activities outputs and
emerging issues will be regularly reviewed and evaluated by the competent bodies of the executing
and implementing agencies (including UNDP/GEF).
The annual review will focus on performance (effectiveness, efficiency and timeliness) and evaluate
the results in applying the defined progress indicators. At the Steering Group Meeting, the Project
will
submit and present an APR (Annual Project/Programme Report) in line with UNDP requirements
and also participate in the GEF’s PIR (Project Implementation Review) exercise each year.
H. LEGAL CONTEXT
The project document shall be the instrument referred to as such in Article 1 of the Standard Basic
Assistance Agreement between the Government of Ukraine and UNDP, signed in 1993 (see Annex
6). The host country implementing agency shall, for the purpose of the Standard Basic Assistance
Agreement, refer to the government co-operating agency described in that Agreement.
The following types of revisions may be made to this project document with the signature of the
UNDP Representative only, provided he or she is assured that the other signatories of the project
document have no objections to the proposed changes:
a) Revisions in, or addition of, any of the annexes of the project document;
b) Revisions which do not involve significant changes in the immediate objectives, outputs or
activities of a project, but are caused by rearrangement of inputs agreed to or by cost increases due
to inflation; and
c) Mandatory annual revisions which re-phase the delivery of agreed project inputs or increased
expert or other costs due to inflation or take into account agency expenditure flexibility.
21
ANNEX 1. WORK PLAN1
Output/Activity
Output 1.1. Municipal
ESCO is established
Activities:
1.1.1. Analyze district
heating financing
activities in the EE/NIS
region
1.1.2. Analyze legal and
fiscal issues of ESCO
operation and develop
possible local regulatory
changes for improvement
of ESCO business
environment
1.1.3. Negotiate the
details of municipal
ESCO establishment with
local project stakeholders
1.1.4. Prepare supporting
materials for ESCO
operation (model energy
performance contract,
other legal documents,
operational procedures
and draft founding
documents)
Output 1.2. 1.2.
Municipal ESCO
developed as a selfsustaining entity
1.2.1. Develop capacity
of the local staff,
including on energy
audits
1
2
Responsibility2
Schedule (months by two years of the project)
4
5
6
7
XX
XX
XX
XX
XX
IA/
MUN
XX
XX
XX
XX
XX
XX
IA
XX
XX
XX
XX
XX
XX
XX
IA/
MUN
XX
XX
XX
XX
XX
XX
XX
IA
IA
1
2
3
XX
XX
XX
XX
8
9
10
11
12
1
2
3
4
5
XX
The tentative work plan for the Stage 1 of the project is to be finalized by the Project Manager within the first 5 months after beginning of the Stage 1.
EA=Executing Agency, IA=Implementing Agency, PM=Project Manager, MUN=Municipality, DHC=District Heating Company
22
6
7
8
9
10
11
12
Output/Activity
1.2.2. Develop and
formulate local
commitments for
attracting external
investors, and study
options for increased
internal financing
1.2.3. Prepare and
distribute to possible
investors/financiers
project description
materials and requests for
participation
1.2.4. Develop a fullscale feasibility study and
prepare supporting
materials for loan/equity
approval process
1.2.5. Conduct
negotiations, select
investors/financiers,
develop and sign ESCO
financial agreements
Output 2.1.
Demonstration project
implemented
Activities:
2.1.1. Prepare working
designs for energy
efficiency measures
2.1.2. Mobilize and
organize participating
officials and beneficiary
communities to undertake
demonstration schemes
2.1.3. Support with
procurement of energy
efficient equipment and
installation services
2.1.4. Develop billing
and accounting system
for shifting to
consumption-based
billing
Responsibility2
Schedule (months by two years of the project)
1
2
3
4
5
6
7
8
9
10
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
IA/
MUN
IA/
MUN
XX
IA
IA/
MUN
1
2
3
4
5
6
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
IA/ DHC
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
IA/ DHC
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
IA/
MUN
XX
12
XX
IA/ DHC
XX
11
23
7
8
XX
XX
9
10
11
12
Output/Activity
2.1.5. Develop and
undertake energy
performance contracts for
the demonstration project
facilities
2.1.6. Implement
demonstration schemes,
covering heat supply
system as well as public
and residential facilities
Output 2.2. Capacity
for optimization of the
integrated district
heating system
financing is
strengthened
Activities:
2.2.1. Prepare capacity
development plan for the
municipalities
2.2.2. Make the materials
prepared for setting up of
the Rivne ESCO widely
accessible
2.2.3. Provide
consultations to
municipalities and district
heating companies
2.2.4. Mobilize and
organize beneficiary
communities to plan,
manage and implement
energy efficiency
initiatives
Output 2.3. Project
experience documented
and disseminated for
replication
Activities:
2.3.1. Document district
heating financing
experience and release
for key target audiences
Responsibility2
Schedule (months by two years of the project)
1
2
3
4
IA/
ESCO
5
6
7
8
9
10
XX
XX
XX
XX
XX
XX
IA/
ESCO
XX
XX
IA/EA
IA/EA
XX
XX
XX
1
2
3
4
5
6
7
8
9
10
11
12
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
X
X
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
X
X
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
X
X
XX
XX
XX
IA/
MUN
XX
12
XX
IA
IA
11
XX
24
XX
Output/Activity
2.3.2. Create the project
web site and disseminate
information about the
project through the
internet and mass media
2.3.3. Conduct seminars
and workshops to provide
targeted training for
municipalities and district
heating companies
Responsibility2
IA/EA
Schedule (months by two years of the project)
1
2
3
4
5
6
7
8
9
10
11
12
1
2
3
4
5
6
7
8
9
10
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
X
X
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
X
X
XX
XX
XX
IA/EA
25
11
12
ANNEX 2. BUDGETS
United Nations Development Programme
UKR/01/G31 - ENERGY EFFICIENCY (RIVNE)
Budget " A"
Main Source of Funds: 1G - Global Environment Trust Fund
Executing Agency: SCEC - State Committee for Energy Conservation
Sbln
10
11
11.51
Description
PERSONNEL
International Consultants
International Experts
11.99 Line Total
13
Administrative Support
13.01 Administrative Assistant
13.02 Administrative Assistant Rivne
13.99 Line Total
Implementing
Funding
Total
SCEC
----------
SCEC
SCEC
----------
15
Monitoring and Evaluation
15.01 Duty travel (in-country)
SCEC
15.02 Duty Travel (UNDP)
UNDP
15.99 Line Total
----------
16
Mission Costs
16.01 Mission Costs
SCEC
16.99 Line Total
----------
17
National Consultants
17.01 Project Manager
SCEC
26
2001
2002
2003
15 000
1
15 000
15 000
1
15 000
15 000
1
15 000
15 000
1
15 000
4 200
12
4 200
4 200
12
4 200
8 400
24
8 400
4 200
12
4 200
4 200
112
4 200
8 400
124
8 400
Net Amount
W/M
Total
Net Amount
W/M
Total
30 000
2
30 000
30 000
2
30 000
Net Amount
W/M
Total
Net Amount
W/M
Total
Net Amount
W/M
Total
8 400
24
8 400
8 400
124
8 400
16 800
148
16 800
Net Amount
Total
Net Amount
Total
Net Amount
Total
9 900
9 900
7 000
7 000
16 900
16 900
5 000
5 000
3 500
3 500
8 500
8 500
4 900
4 900
3 500
3 500
8 400
8 400
Net Amount
Total
Net Amount
Total
5 000
5 000
5 000
5 000
2 500
2 500
2 500
2 500
2 500
2 500
2 500
2 500
Net Amount
28 800
14 400
14 400
0
0
0
0
0
17.02 Rivne Local PM
17.03 Demonstration Project Manager
17.99 Line Total
19
PROJECT PERSONNEL TOTAL
SCEC
SCEC
----------
----------
20
CONTRACTS
21
Contract A
21.01 Technical support and Training
SCEC
21.99 Line Total
----------
22
Contract B
22.01 Feasibility Study, ESCO
SCEC
22.02 Demonstration Scheme
SCEC
22.03 Monitoring and Evaluation
UNDP
22.04 Technical Verification
SCEC
22.99 Line Total
----------
29
----------
SUBCONTRACTS TOTAL
30
TRAINING
32
Other Training
32.01 Project Inception Workshop
SCEC
32.02 Final Workshop
SCEC
32.03 Training Workshops
SCEC
27
W/M
Total
Net Amount
W/M
Total
Net Amount
W/M
Total
Net Amount
W/M
Total
Net Amount
W/M
Total
24
28 800
24 000
24
24 000
24 000
24
24 000
76 800
72
76 800
145 500
222
145 500
Net Amount
Total
Net Amount
Total
0
12
14 400
12 000
12
12 000
12 000
12
12 000
38 400
36
38 400
72 800
61
72 800
12
14 400
12 000
12
12 000
12 000
12
12 000
38 400
36
38 400
72 700
161
72 700
80 000
80 000
80 000
80 000
40 000
40 000
40 000
40 000
40 000
40 000
40 000
40 000
Net Amount
Total
Net Amount
Total
Net Amount
Total
Net Amount
Total
Net Amount
Total
Net Amount
Total
388 000
388 000
396 500
396 500
40 000
40 000
60 000
60 000
884 500
884 500
964 500
964 500
230 000
230 000
264 500
264 500
20 000
20 000
30 000
30 000
544 500
544 500
584 500
584 500
158 000
158 000
132 000
132 000
20 000
20 000
30 000
30 000
340 000
340 000
380 000
380 000
Net Amount
Total
Net Amount
Total
Net Amount
Total
3 000
3 000
5 000
5 000
71 000
71 000
3 000
3 000
0
0
0
0
44 000
44 000
5 000
5 000
27 000
27 000
32.04 Study tour
SCEC
32.99 Line Total
----------
39
----------
TRAINING TOTAL
40
EQUIPMENT
45
Equipment
45.01 Expendable Equipment
SCEC
45.02 Non-expendable Equipment
SCEC
45.03 Office Operation & Maint Kiev
SCEC
45.04 Office Operation & Maint Rivne
SCEC
45.99 Line Total
----------
49
----------
EQUIPMENT TOTAL
50
MISCELLANEOUS
52
Reporting Costs
52.01 Reporting Costs
SCEC
52.99 Line Total
----------
53
Sundries
53.01 Sundries
SCEC
53.99 Line Total
----------
59
MISCELLANEOUS TOTAL
----------
99
BUDGET TOTAL
----------
28
Net Amount
Total
Net Amount
Total
Net Amount
Total
36 000
36 000
115 000
115 000
115 000
115 000
18 000
18 000
65 000
65 000
65 000
65 000
18 000
18 000
50 000
50 000
50 000
50 000
Net Amount
Total
Net Amount
Total
Net Amount
Total
Net Amount
Total
Net Amount
Total
Net Amount
Total
37 000
37 000
548 000
548 000
5 000
5 000
5 000
5 000
595 000
595 000
595 000
595 000
24 000
24 000
368 000
368 000
2 500
2 500
2 500
2 500
397 000
397 000
397 000
397 000
13 000
13 000
180 000
180 000
2 500
2 500
2 500
2 500
198 000
198 000
198 000
198 000
Net Amount
Total
Net Amount
Total
10 000
10 000
10 000
10 000
5 000
5 000
5 000
5 000
5 000
5 000
5 000
5 000
Net Amount
Total
Net Amount
Total
Net Amount
Total
Net Amount
W/M
Total
10 000
10 000
10 000
10 000
20 000
20 000
1 840 000
222
1 840 000
5 000
5 000
5 000
5 000
10 000
10 000
1 129 300
61
1 129 300
5 000
5 000
5 000
5 000
10 000
10 000
710 700
161
710 700
0
0
0
Table 2. Stage 1 project budget by sources and components, US$.
Other
UNDP/
GEF
Component
Rivne ESCO Establishment
Demonstration Project
Info. Dissemination/Replication
Monitoring and Evaluation
Total Stage I
City
640 000
900 000
130 000
170 000
1 840 000
RDHC
25 000
40 000
0
5 000
70 000
SCEC
25 000
80 000
0
10 000
115 000
0
80 000
0
0
80 000
External
Investors
50 000
0
0
0
50 000
Total
Total
100 000
200 000
0
15 000
315 000
740 000
1 100 000
130 000
185 000
2 155 000
Table 3. Consolidated project budget (Stage 1 and 2) by sources and components, US$1000
Sources of
Financing
UNDP/GEF
City
RDHC
Region
SCEC
Private investor
Foreign banks
Local banks
IFI
Total
Project Components
ESCO
Establishment
640
25
25
30
20
740
Investment
Program
4 000
1 600
1 700
400
80
2 400
4 800
2 020
7 000
24 000
Replication
334
Monitoring and
Evaluation
360
25
25
20
354
410
TOTAL
5 334
1 650
1 750
400
100
2 430
4 820
2 020
7 000
25 504
Table 4. Investment component by types and sources of financing, US$1000
Sources of
Financing
UNDP/GEF
City
RDHC
Region
SCEC
Types of Financing
Grant
ESCO Equity
Ongoing Local
Financing
Debt Financing
4 000
400
400
400
1 200
1 300
80
29
TOTAL
4 000
1 600
1 700
400
80
Private investor
Foreign banks
Local banks
IFI
Total
2 400
4 000
400
4 000
4 800
2 020
6 600
13 500
30
2 500
2 400
4 800
2 020
7 000
24 000
ANNEX 3. RIVNE ESCO FINANCING AND OPERATION SCHEME
Dividends,
loan payments
Equity, loans,
grant, ongoing
local fiancing
Financing
sources
Municipal ESCO
Financing sources:
•Municipality (equity, ongoing financing)
•Regional government (equity, ongoing financing)
•District heating company (equity, ongoing financing)
•State budget (ongoing financing)
•GEF (grant)
•Private investor(s) (equity)
•IFIs (equity, loan)
•Foreign banks (loan)
•Local banks (loan)
ESCO: Municipal company with private sector and
Share of
savings
Energy services
under EPCs
international financial institution investments
Supply and demand
side clients
Clients:
•District heating company (boiler plants, networks,
substations)
•Municipal, regional and state budgetary institutions
(public buildings)
•Municipality (residential buildings)
•Housing cooperatives and condominiums (residential
buildings)
31
ANNEX 4. INVESTMENT DETAILS
Suggested program of measures to improve energy efficiency was determined in the pre-feasibility
study during PDF Block B phase. It includes a typical fragment of the heat supply system and its
users, targeted for demonstration implementation, and a city-wide program extrapolated from
detailed estimates of demonstration fragment.
Demonstration project.
The demonstration project will include a typical medium-sized boiler plant (partial modernization)
and a part of its heat transportation network and consumers. The physical scope of the project (as
described in the pre-feasibility study developed under PDFB phase) is determined by the
requirement of achieving tangible effects in the form of reduced fuel consumption when the heat
consumption in buildings decreases. Technical measures are representative of the city-wide
program; estimates of their financial and environmental performance are presented in the following
table.
Energy saving
measures
1. HEAT SOURCES
1.1. New boiler
installation
1.2. Retrofitting of two
existing boilers
1.3. Whole-plant
efficiency measures
1.4. Dispatch
management system
SUB-TOTAL FOR
HEAT SOURCES
2. HEAT TRANSPORTATION SYSTEM
2.1. Replacement of
pipes
2.2. Modernization of
group heat substations
TOTAL FOR DH
SYSTEM (1+2)
3. BUILDINGS
Building-level heat
metering
Heating system
controls
Apartment-level hot
water metering
Insulation of pipes
Radiator reflectors
TOTAL FOR
BUILDINGS
TOTAL
Costs,
$1000
Annual
average
benefits,
$1000
Simple
payback
period,
years
Discoun
ted payback
period,
years
NPV,
$1000
IRR,
%
Gas
savings,
million
m3
Reduction
of СО2
emissions,
1000 tons
Specific
costs,
$ / ton
СО2
112.0
24.7
4.8
6.9
90.3
21.0
5.4
10.7
10.4
60.4
25.0
2.6
3.6
138.0
45.0
5.8
11.8
5.1
87.2
32.0
3.0
4.2
164.0
36.0
7.1
15.1
5.8
57.2
10.3
5.6
8.5
31.4
16.2
2.9
5.4
10.5
317.0
92.0
3.7
5.2
424.0
28.6
21.2
43.0
7.4
501.6
72.0
7.0
10.8
144.0
13.0
15.8
29.8
16.8
46.6
9.7
4.8
6.9
38.0
21.0
2.8
5.2
9.0
865.0
166.3
5.2
7.3
606.0
20.0
39.8
78.0
11.1
17.3
7.0
2.5
3.5
42.0
46.5
2.0
3.7
4.7
73.9
17.1
4.3
5.3
78.0
27.1
3.3
6.2
12.0
21.2
10.0
170.6
10.4
2.1
36.6
2.0
4.7
4.7
2.3
6.2
6.1
69.0
9.0
154.0
77.0
23.5
23.6
3.0
0.6
8.9
5.6
1.1
16.6
3.8
8.8
10.3
1035.0
211.0
5.1
7.1
760.0
20.2
48.7
94.5
11.0
43.8
32
In addition to technical measures, the demonstration project will include shifting to a consumptionbased billing system and developing the necessary billing software, as well as introducing
regulatory changes to stimulate energy saving, including the adjustment of subsidies allocation
system. The total cost of the demonstration project is estimated at about $1.1 million, with $0.9
million provided by the UNDP/GEF.
City-wide investment program details.
Energy efficiency measures proposed for the district heating system and its users consist of the
following:




Supply-side measures for large and medium-size boiler plants: Retrofitting the existing boilers
(making the boiler furnace and gas ducts air-tight; installing high-quality insulation over the
boiler surfaces, fittings and heat pipes; improving the air distribution system of the burners;
installing modern burners; reconstructing convective shafts and convective surfaces; heat
recovery from exhaust gases; re-circulation of exhaust gases; installing automatic controls for
combustion processes; installing variable speed drives on boiler fans and ventilators);
replacement of boilers (together with installing re-circulation of exhaust gases); measures for
the boiler plants as a whole (automated water treatment; anticorrosive make-up water treatment;
automatic control of the technological processes at the boiler plant; variable speed drives on
circulating pumps; information system for the operation of the boiler plant); and a heating
region dispatch management system with a commercial metering subsystem.
Supply-side measures for small boiler plants: Replacing the boilers and heat recovery from
exhaust gases; automating the water treatment and information systems for boiler plant
operation.
Supply-side measures for the heat transportation system (transmission/distribution pipelines
and heat substations): Replacing transmission and distribution pipelines with pre-insulated
pipes; retrofitting part of the existing group substations (installing modern heat exchangers,
controls, etc.; creating an information system for group substation operation); decentralizing the
hot water supply by eliminating part of the group substations and installing individual buildinglevel substations.
Demand-side measures: installing commercial metering of heat consumption; heating system
controls; hot water apartment-level metering; heat insulation of pipes; installation of radiator
reflectors.
In evaluating financial returns from the investment program, achievable energy and cost savings
were estimated on a conservative basis; cost estimates were based on current quotations of suppliers
and include 10% contingency. The following assumptions were used in cash flow analysis: 10%
nominal discount rate; 5-year investment period; period of analysis -- 20 years; gas price
(practically only fuel consumed by the heat supply system) -- $47 per 1000 m3 in the year 2002 with
annual growth rate at 4.5%; electricity price at $0.04 per kWh with 3.5% annual growth rate.
33
The energy efficiency investment program has the following economic parameters:
Objects
District heating system, including:
Boiler plants
Transmission/distribution
networks
Group heat substations
Individual heat substations
Buildings
TOTAL
19.4
5.7
12.1
Annual
average
benefits,
$million
3.4
1.4
1.7
0.6
1.0
4.3
23.7
0.2
0.2
0.6
4.0
Cost,
$million
(nominal)
Simple
payback
period,
years
6.0
4.5
7.4
Discounted
payback
period,
years
10.0
7.5
12.4
3.8
6.3
6.6
6.1
6.8
9.2
10.9
10.1
NPV,
$millio
n
IRR, %
12.9
6.7
4.7
19.6
28.5
14.8
0.9
0.6
2.3
15.3
33.8
19.0
18.2
19.4
An analysis of the environmental impact of efficiency measures was made based on IPCC
methodology. The main results concerning greenhouse gas emissions reduction are the following:
Gas savings,
million m3
827
CO2 emissions
reduction, 1000 tons
1 607
Specific cost,
US$ / ton CO2 (nominal)
12.1
Boiler plants
367
741
7.7
Transmission/distribution networks
362
685
17.7
Group heat substations
49
91
6.3
Individual heat substations
49
90
10.9
207
384
11.2
1 034
1 991
11.9
Objects
District heating system, including:
Buildings
TOTAL
The emissions reduction depicted is almost totally due to reduced gas consumption. Emissions
reductions due to electricity savings account for less than 4% of the total and are calculated based
on the average emission factors for power production in Ukraine.
The UNDP/GEF funding ($4 million) under the investment program will finance the major part of
demonstration project implementation and also the implementation of longer-payback measures
(like pipe replacement and measures in buildings), less economically attractive and more risky for
private investors. These measures may also receive the majority of financing provided by local
stakeholders. This approach will help to reduce the risks and ensure involvement of private
financing in the project.
34
ANNEX 5. TERMS OF REFERENCE
Project Manager (Kyiv)
Principal Responsibilities:
Under the responsibility of the National Project Director (see Section F for details of
implementation arrangements) the Project Manager has the following principal responsibilities:
1. Define major strategy issues for the project design and participate in its detailed development in
collaboration with concerned managers and assisting experts, including the preparation of the
terms of reference of consultants, national experts and subcontractors recruited under the
project, forward planning of project activities and budget expenditures, activity scheduling, and
reporting.
2. Supervise the day to day management of the project and the project staff, including
administration of the project according to UNDP procedures, accounting for the project,
technical management of the project, and the timeliness of project implementation.
3. Support operation of the Project Implementation Office in Rivne
4. Ensure full compliance of project activities with all financial and technical rules, regulations and
procedures relevant for the project implementation (both UNDP and national).
5. Supervise all project financial operations and budget expenditures and provide, in accordance
with the standard UNDP rules and procedures and any additional requirements specified by the
national executing agency and UNDP office in the project agreement with the national
implementing agency.
6. Assist in the selection of consultants and short term experts recruited under the project, in full
accordance with relevant Ukrainian and UNDP rules, regulations, and procedures.
7. Participate in selection staff (both project staff and other relevant staff of participating
organizations) for local and/or overseas training.
8. Solve ongoing project strategy and policy issues and present the project at any high-level
meetings with Ukrainian and foreign governmental organizations, international institutions and
investors/financiers.
9. Ensure liaison with the Project Steering Committee and UNDP office, and ensure that the
decisions and recommendations of the Project Steering Committee, and the opinions of the
UNDP, are fully incorporated within the scope of the project implementation.
10. Ensure full liaison with the GEF Operational Focal Point at the Ministry of Ecology and Natural
Resources.
Duration: The appointment of the project manager will be for the full duration of the project.
Qualifications and experience:
 masters degree in engineering or economics;
 minimum of 10 years of professional experience;
 experience with the design and implementation of energy efficiency programmes and projects;
 extensive experience of cooperation with Ukrainian and foreign governmental organizations and
international financial institutions;
 extensive experience with project management and a demonstrated ability to manage complex
technical assistance projects;
 good interpersonal skills;
 PC skills;
35

English language knowledge.
Reporting requirements:
The Project Manager should submit quarterly reports to the National Project Director. These reports
should indicate the progress achieved in the implementation of the project over the reporting period,
and highlight any problems encountered or foreseen, and the proposed solutions to these problems.
Deviations from the foreseen timetable for implementation should also be reported.
The members of the Steering Committee may also be provided with copies of the quarterly progress
reports of the project manager for information (at the discretion of the National Project Director).
Administrative Assistant (Kyiv)
Principal Responsibilities:
Under the supervision of the Project Manager, the Administrative Assistant will perform a variety
of information collecting, monitoring, technical and administrative services in support of project
activities. The project assistant will be responsible for the following duties:
1. Assist in maintaining close contacts with the government, executing agency, project partners,
and other counterparts through direct contacts, collection and summarizing of information,
proposals, incoming and outgoing documents, drafting letters, organizing meetings etc.
2. Provide operational support in project activities.
3. Supervise collecting the data and other information for project activities; maintaining, logging,
filing and updating records in prescribed format for subsequent use.
4. Contribute to the preparation of status and progress reports by providing information, preparing
tables and drafting selected sections of it. Prepare background material for use in discussions
and briefing sessions.
5. Assist in monitoring project activities by reviewing a variety of records, including
correspondence, reports, project inputs, budgets and financial expenditures in accordance with
UNDP requirements. Prepare and file correspondence and materials relevant to the above.
6. Assist in preparation of terms of reference for subcontractors and consultants.
7. Assist in the organization of and logistical preparation for workshops, seminars, presentations,
visiting missions, field trips, etc.
Duration: The appointment of the Administrative Assistant will be for the full duration of the
project.
Qualifications and experience:
 higher education in energy, environmental management or other field relevant to the project;
 5 years experience of organizational and administrative work preferably connected with
environmental issues;
 experience in coordinating the work of expert groups for the achievement of strategic goals;
 computer skills;
 good command of Ukrainian, Russian and English.
36
Local Project Manager (Rivne)
Principal responsibilities:
1. The Local Project Manager will have the following responsibilities:
2. Continuously interact with the Project Manager and concerned activity managers and provide
inputs to planning of project activities, scheduling and reporting.
3. Organize and supervise the work of the staff allocated by the local authorities and district
heating company for implementation of project tasks.
4. Ensure liaison with the oblast administration, municipality and district heating company, and
ensure that the opinions of the local project stakeholders are fully incorporated within the scope
of the project implementation.
5. Assist in identifying areas of capacity development activities where international and/or national
experts are required to assist in relation to information and outreach, such as facilitating the shift
to consumption-based billing systems, introduction of regulatory changes to motivate energy
saving, adjustment of subsidy allocations, and other regulatory changes, and prepare
specifications for task requests for international and/or national experts.
6. Undertake the analysis of the information needs of the local authorities in order to identify the
targets for dissemination and outreach, and, in cooperation with the Technical Coordinator and
Information Specialist, prepare complete capacity development plan for the pilot city
municipality.
7. The Local Project Manager should be the first point of contact for local press enquiry’s, and
should participate in planning a press relations strategy to ensure a wide dissemination of
information concerning the objective of the project, the progress of the project, and the concrete
outputs and achievements of the project.
8. Provide necessary inputs for the project monitoring and evaluation purposes, assist in collection
of regular feedback from project stakeholders and all interested parties.
9. Assist in the organization of and logistical preparation for workshops, seminars, presentations,
visiting missions, field trips, etc conducted in the city of Rivne.
Duration: The Local Project Manager will be recruited for the full duration of the project.
Qualifications:
 education to masters degree level;
 minimum of 5 years professional experience;
 knowledge of municipal management issues and municipal infrastructure problems;
 proven managerial and interpersonal skills;
 experience in organizing and conducting training seminars;
 experience in the field of energy efficiency would be an advantage;
 PC skills;
 knowledge of the English language.
Demonstration Project Manager (Rivne)
Principal Responsibilities:
Under the responsibility of the Local Project Manager (Rivne), the Demonstration Project Manager
has the following principal responsibilities:
37
1. Assist in developing the detailed project design, activity scheduling, and reporting that concerns
the demonstration project component.
2. Prepare the tender between design organizations for development of demonstration project
designs and participate in tender commission and selection of candidates.
3. Prepare the scope of work and terms of reference for a detailed audit of the demonstration
project facilities during the 2001/2002 heating season, and participate in the audit.
4. Prepare the scope of work and terms of reference for development of working designs for
energy efficiency measures on demonstration objects (heat sources, networks, consumers) and
for other subcontracts under demonstration project implementation.
5. Review (together with subcontractors) of the principal technical solutions (working designs'
sections to be confirmed), finalize and approve them together with the ESCO and clients.
6. Together with subcontractors, review and finalize completed sections of working designs and
equipment specifications.
7. Participate, together with Project Manager, in the preparation of the tender for procurement of
demonstration project equipment and in the work of tender commission.
8. Develop a detailed schedule for installation of energy efficiency measures on demonstration
objects (heat sources, networks, consumers).
9. Lead the author supervision of design organizations and demonstration project installation
works.
10. Participate in commissioning and acceptance of demonstration project installations.
11. Assist in developing a monitoring and verification plan for demonstration project facilities; and
participate in monitoring and verification activities.
12. Analyze the demonstration project performance and update the technical and economic
estimates for efficiency measures.
13. Based on demonstration project results, develop necessary modifications to the city-wide energy
efficiency program.
Duration: The Demonstration Project Manager will be appointed for the full duration of the
project.
Qualifications and experience:
 masters degree in engineering;
 experience of energy installations design (various heat sources and district heating networks,
fuel supply systems);
 minimum of 5 years of work in a design organization as a principal designer or lead specialist;
 experience with the design of experimental energy objects;
 experience of commissioning and acceptance of energy objects;
 experience of preparation of terms of reference and contracting with design organizations;
 PC skills;
 English language knowledge.
Project Implementation Office Assistant (Rivne)
Principal Responsibilities:
The Interpreter / Secretary will be responsible for the following duties:
1. Coordinate translation services, prepare unofficial translations and act as an interpreter when
necessary.
38
2.
3.
4.
5.
Prepare letters, reports, and other documents.
Process and circulate working papers.
Collect data and other information for project activities.
Administer the filing system; maintain, log, file and update records in prescribed format for
subsequent use.
6. Schedule and provide records of meetings.
7. Coordinate travel arrangements.
8. Assist in the logistical preparation for workshops, seminars, presentations, visiting missions,
field trips, etc.
Duration: The appointment of the Interpreter / Secretary will be for the full duration of the project.
Qualifications and experience:
 higher education in linguistics, environmental management or other field relevant to the project;
 experience of interpreting/translating and secretarial/clerical work preferably connected with
environmental issues;
 knowledge of office hardware and software (word processing, spreadsheet, and presentation
programs);
 good command of Ukrainian, Russian and English.
39
ANNEX 6. STANDARD BASIC ASSISTANCE AGREEMENT
40
ANNEX 7. PROJECT PLANNING MATRIX
Goals/Purposes
Goal
Mitigate existing barriers to implementation of integrated
approach to supply and demand side energy efficiency
improvements to district heating systems in Ukraine,
thereby reducing associated greenhouse gas emissions.
Purpose
1. Strengthen local institutional capacity in the city of
Rivne for identifying, preparing and implementing
supply and demand side energy efficiency projects in
the district heating system.
Verification
CO2 emissions are reduced by more than 90,000 tons
as a result of the demonstration project.
Cumulative natural gas consumption at demonstration
project facilities is reduced by at least 45 million m3.
Sources of
Verification
Demonstration
project technical
report.
Yearly reports of the
Rivne ESCO and
DH company.
By the end of the month 4 of the project, a prototype Project progress
municipal ESCO office is established in partnership reports and yearly
with the local authorities.
reports of Rivne
ESCO.
Analysis of the business environment performed and
necessary materials for pilot municipal ESCO
establishment and operation prepared by the end of the
month 7 of the project.
By end of this pilot phase, a sustainable municipal
ESCO is fully functional based on cost-recovery from
its services and investments from the government, local
authority and private sector.
41
Assumptions
Positive trends in
local business
environment
continue.
Current trends in
the Ukrainian
investment
climate and
exchange rate
continue.
2. Develop viable approaches to sustainable energy saving Demonstration project is implemented and energy
or efficiency through demonstration schemes in the pilot efficiency measures are undertaken.
city for wider replication in Ukraine.
Regular investments made by the municipality for
energy development and saving initiatives are fully
incorporated into the project initiatives during the first
year.
Demonstration
project technical
report.
Progress in
management of
DH systems
continues.
Project reports.
Positive trends in
local business
environment
continue.
All beneficiary households in the selected residential
areas fully participate in implementing energy saving Yearly reports of
initiatives.
Rivne ESCO.
Beneficiary communities and the municipality
experience savings in cost by the end of this project.
Demand for replication of the demonstration schemes
in other municipalities significantly increases by the
end of this project.
Results:
1.1. Municipal ESCO is established.
Supporting materials for the ESCO operation are
developed.
A municipal ESCO is created by the end of the first
year of the project, including the ESCO charter and
registration.
42
Model energy
performance
contract and other
project materials.
Project reports.
Positive trends in
local business
environment
continue.
1.2. Municipal ESCO developed as a self-sustaining
entity.
ESCO staff is trained and energy audit equipment
procured.
Local commitments are confirmed.
Project reports.
Feasibility study
report.
Full-scale feasibility study for city-wide energy
efficiency program is developed.
Current trends in
the Ukrainian
investment
climate and
exchange rate
continue.
Negotiations are conducted and ESCO financial
agreements reached.
2.1. District heating supply and demand side measures on
demonstration project facilities are implemented and
consumption-based billing system for demonstration
buildings introduced.
2.2. Capacity for optimization of the integrated district
heating system financing is strengthened.
Total amount of investments obtained for
implementation of city-wide energy efficiency
program.
Local investments for energy development and saving
initiatives are fully incorporated into the project.
Energy efficiency measures under demonstration
project are implemented.
Energy performance contracts for demonstration
project are signed.
Project materials are prepared for dissemination.
Contracts and
project progress
reports.
Demonstration
project technical
report.
Project reports.
Lessons learned are documented and made available to Demonstration
investors and Government.
project technical
report.
Beneficiary households in the selected residential areas
and the municipality fully participate in implementing
energy saving initiatives and experience savings in cost
by the end of this project.
Consultations to municipalities and district heating
companies are provided.
43
Positive trends in
local business
environment
continue.
Progress in
management of
DH systems
continues.
2.3. Project experience, including implementation
processes, documented and disseminated for replication.
By the end of the project at least 2 additional contracts
for the Rivne ESCO at the local and/or regional level
are signed.
Project is mentioned in the media at least 2 times/year.
Project website is created.
Project workshops are conducted.
44
Contracts and
project reports.
Progress in
management of
DH systems
continues.
Activities:
1.1.1. Compile the results and analysis of work to date conducted in the EE/NIS region on district heating financing.
1.1.2. Perform necessary analysis of legal and fiscal issues regarding ESCO operation in the country, develop possible local regulatory changes for
improvement of ESCO business environment, and determine the ESCO operational setup.
1.1.3. Negotiate the details of municipal ESCO establishment with local project stakeholders (municipality, regional government, district heating company).
1.1.4. Prepare supporting materials for ESCO operation, including model energy performance contract, other legal documents, operational procedures and
draft founding documents.
1.2.1. Develop capacity of the local staff, including on energy audits.
1.2.2. Develop and formulate necessary commitments to be made by the local stakeholders for attracting external investors, and study options for increased
internal financing.
1.2.3. Prepare and distribute to possible investors/financiers project description materials and requests for participation.
1.2.4. Develop a full-scale feasibility study and prepare supporting materials for loan/equity approval process.
1.2.5. Conduct negotiations, select investors/financiers, develop and sign ESCO financial agreements.
2.1.1. Prepare working designs and plan for energy efficiency measures.
2.1.2. Mobilize and organize participating officials of public facilities and beneficiary communities of residential areas to undertake demonstration schemes.
2.1.3. Support with energy efficient equipment and installation services.
2.1.4. Develop billing and accounting system, including software, for shifting to consumption-based billing.
2.1.5. Implement demonstration schemes, covering distribution system as well as public and residential facilities.
2.1.6. Develop and undertake energy performance contracts for the demonstration project facilities.
2.2.1. Prepare capacity development plan for the municipalities to facilitate the shift to consumption-based billing systems, introduction of regulatory changes
to motivate energy saving, adjustment of subsidy allocations, and other regulatory changes.
2.2.2. Making the materials prepared for setting up of the Rivne ESCO widely accessible (including the model ESCO charter and foundation agreement, the
model energy performance contract, the analysis of legal and fiscal issues, the local commitments necessary to attract investors, etc.).
2.2.3. Provide consultations to municipalities and district heating companies regarding technical solutions, energy saving and emissions reduction potential
for supply and demand side energy efficiency improvements in district heating system, preparation of bankable projects, and the ESCO approach to financing
energy-saving project, and policy reform issues.
2.2.4. Mobilize and organize beneficiary communities to plan, manage and implement energy efficiency initiatives.
2.3.1. Document the experience of financing district heating efficiency in the EE/NIS region and its relevance to Ukraine, and release in Ukrainian and
English for key target audiences.
2.3.2. Create the project web site and disseminate information about the project through the internet and mass media.
2.3.3. Conduct seminars and workshops to provide targeted training for municipalities and district heating companies.
45
ANNEX 8. INCREMENTAL COSTS
The analysis of incremental costs presented below was based on the Stage I and II proposed project.
Specific reference to Stage I and II is provided in the Incremental Cost Matrix at the end of this
Annex.
Baseline:
In the absence of GEF support, energy efficiency in municipal district heating system and buildings
will improve slowly, and many technically feasible and financially attractive opportunities will not
be realized. The level of locally possible efficiency activities in the city of Rivne is determined by
available financing resources envisioned in the “Municipal Comprehensive Energy Efficiency
Program for the Period 1999-2010”. The program was adopted by the City Council and introduced
by the city mayor's decree #2574-p of December 30, 1988 in pursuance of the Cabinet of Ministers'
Decrees #148 of February 5, 1997 "On the Comprehensive National Program on Energy
Conservation in Ukraine" and #731 of July 10, 1997 "On Comprehensive Measures for
Implementation of the National Energy Program of Ukraine until 2010".
According to the municipal program, expenditures of the city budget and district heating company
during proposed investment period (2002-2006) are about $0.45 million annually or $2.25 million
over the whole investment period. This amount presents realistic baseline investment level
achievable without GEF support. Estimated potential for cost-effective investments in supply and
demand side energy efficiency is about $ 24 million. So in the absence of the GEF support, limited
financial resources would allow to realize only about 9% of the cost-effective potential.
In the municipal program it is planned to use these resources for a number of projects in the district
heating system and the public sector. A major part of the funding should be used to modernize the
heat supply system by shutting down some inefficient boiler plants and connecting their load to
more efficient plants, replace a number of obsolete boilers by more efficient ones, partially replace
heat transmission pipes by pre-insulated ones, and implement some other lower-cost measures.
Plans concerning the heat consumption are limited to installing heat meters and controls for a part of
consumers.
Baseline activities under the other three suggested project components (setting up of the ESCO,
replication measures, measurement and evaluation) are practically absent.
GEF alternative intervention:
With GEF assistance, major financial and institutional barriers in the pilot city will be reduced
through establishment of the Rivne ESCO and leveraging financing for the investment program
from the private sector and international financial institutions. Setting up of the ESCO will provide
necessary capacity building to prepare, manage and implement suggested investment program and
possible other energy efficiency projects in the region.
Under the suggested energy efficiency investment program, all technically feasible and costeffective opportunities will be realized both in the district heating system and connected buildings.
In the district heating system, retrofitting/replacement of generating capacity will be performed.
Where it is cost-effective, pipes in transmission/distribution network will be replaced by pre46
insulated ones. Based on economic criteria, it is envisioned to eliminate part of group substations
and replace them with modern individual substations in buildings. Modern heat supply management
system will be introduced. In buildings it is planned to install heat meters and controls, apartmentlevel hot water meters, heat insulation of pipes and other measures. Consumption-based metering
and billing will provide incentives for households and budgetary organization to take appropriate
steps to improve the energy efficiency of their buildings and to start saving heat and hot water.
Implementation of the investment program will result in reducing about 2 million tons of GHG
emissions in CO2 equivalent over the project lifetime. As the investments are realized through
commercially viable ESCO-mechanism, the project is sustainable and can be replicated in other
Ukrainian cities.
The measures promoting project replication include preparing and making available supporting
materials for setting up of ESCOs, providing necessary consultations, information dissemination,
awareness raising etc. Project replication potential for communal heat supply sector in other cities
makes up about 64 million tons of CO2 equivalent.
Domestic benefits:
Project implementation provides several domestic benefits. Most essential of them are: positive
economic and financial returns from investments, higher level of heat supply service and reliability
of district heating system operation, lower air pollution (in particular by NOx), creation of incentives
to energy savings in public and residential sector, reduction of budgetary expenditures on residential
subsidies and institutional buildings' heat bills, improvement of the qualification of district heating
company personnel and its management capacity. Operating ESCO will be able to further expand its
activity to the region as a whole and implement energy saving measures in industry and
infrastructure sectors, thus achieving additional economic and environmental benefits. Creation of
the ESCO and expansion of its activity will contribute to the development of local energy service
market.
For the country as a whole, the project will help reduce the level of dependence on external gas
supplies. Successful operation of the Rivne ESCO will facilitate setting up of similar ESCOs in
other cities and attracting foreign private capital and experience to Ukraine. Replication of the
project in other Ukrainian cities will bring additional domestic and global benefits, although these
benefits cannot to be exactly quantified.
Notes on Calculating Incremental Costs:
Incremental costs were calculated for 5-year investment period (2002-2006) as a difference between
the total project cost ($25.52 million) and local baseline expenditures over the same period ($2.26
million). In this case the incremental costs are equal $23.26 million and does not take into account
cost saving due to reduced gas, electricity and water consumption and avoided O&M and other
costs. Comparison of these total incremental costs with the incremental global environmental
benefits (CO2 emissions reduction in the amount of 1.8 million tons) yields incremental specific
reduction cost at the level of $12.9 per tonne CO2.
47
The cost savings (from reduced energy consumption and avoided costs) over the investment period
make up $9.58 million). If these cost savings are taken into account, incremental costs will reduce to
$13.68 million. In this case, incremental specific reduction cost will be $7.6 per tonne CO2.
Even with cost savings factored into the calculations, incremental costs ($13.68 million) exceed the
GEF share in the project ($5.35 million). The difference is covered by leveraging external financing
and local contribution. GEF funding provides necessary risks mitigation to attract external
resources, primarily from private investors.
The municipal investment program is the only program in which net incremental costs (as calculated
assuming risk-free investment conditions) would be negative. For this reason, the project must
ensure that returns to the Rivne ESCO, a public-private partnership, continue to generate global
benefits. During the course of Activity 1 (Establishing the Rivne ESCO), the project team will
structure the model performance contract and the subsequent city-wide contract so that returns from
the projects proportional to the involvement of GEF investments and equity contributions are
recovered for use as equity in future municipal efficiency projects.
48
Table 3-1. Incremental cost matrix
Component
1. Setting up of a municipal ESCO
Benefits/ Costs
Global
Environmental
Benefits
Domestic
Benefits
Costs
2. Whole-city investment program
Baseline
No systematic activity to improve
energy efficiency (EE) in heat
supply system and buildings in
residential and public sectors.
No organization specialized in
implementation of EE measures
both in municipal district heating
system and buildings sector.
$0
Global
Environmental
Benefits
Slow and limited reduction of GHG
emissions (0.19 million tons of
GHG reduced over 20 year project
period).
Domestic
Benefits
Benefits correspond to a low level
of energy-efficiency related
investments being made.
49
Alternative
Systematic energy saving activity
on municipal level to provide
efficiency improvements.
Increment
Systematic energy saving activity
on municipal level to provide
efficiency improvements.
Municipal ESCO to provide
implementation of EE measures
both in municipal DH system and
buildings sector on sustainable
basis.
Municipality: $25,000
DH company: $25,000
GEF contribution: $640,000
Private investor: $30,000
Foreign banks: $20,000
Total: $740,000
Significant GHG emissions
reduction (1.99million tons of
GHG reduced over 20 year
project period).
Leverage of financial resources
for large-scale energy saving and
emissions reduction activities.
Benefits correspond to
investments facilitated through
whole-city investment program.
Creation of the pilot city ESCO
with the prospect of expanding its
activity to other energy efficiency
projects in the region (including
municipal infrastructure and
industry)
Municipal ESCO to provide
implementation of EE measures
both in municipal DH system and
buildings sector on sustainable
basis.
Municipality: $25,000
DH company: $25,000
GEF Phase I: $640,000
Private investor: $30,000
Foreign banks: $20,000
Total: $740,000
Additional GHG emissions
reduction (1.8 million tons of
GHG reduced over 20 year
project period).
Leverage of financial resources
for large-scale energy saving and
emissions reduction activities.
Comprehensive retrofitting of
municipal DH system.
Improved heat comfort level.
Consumption-based heat and hot
water metering and billing
in residential sector and public
buildings.
Creation of the pilot city ESCO
with the prospect of expanding its
activity to other energy efficiency
projects in the region (including
municipal infrastructure and
Component
Benefits/ Costs
Baseline
Alternative
Increment
industry)
3. Project replication measures
Costs
Municipality: $1,100,000
DH company $1,150,000
Total (over the 5 year program
investment period): $2,250,000
Municipality: $1,600,000
DH company: $1,700,000
Region: $400,000
Private investor: $2,400,000
Foreign banks: $4,800,000
Local banks: $2,100,000
EBRD Financing: $7,000,000
GEF Contribution: $4,000,000
Total: $24,000,000
Global
Environmental
Benefits
Domestic
Benefits
None
Reduction of GHG emission
through replication of the ESCOapproach in other cities.
Expansion of energy saving
activities through information
dissemination, training, specific
cost-reduction measures, new
financing mechanisms.
Creation of ESCO infrastructure
and energy service market
development.
Government: $20,000
GEF Contribution: $160,000
Total: $180,000
Slow and spontaneous removing of
the institutional and financial
barriers without any supervision
and sound organizational support.
Costs
4. Monitoring and evaluation
$0
Global
Environmental
Benefits
None
Domestic
Benefits
Limited monitoring and evaluation
of the baseline-related activities
50
Monitoring and evaluation of all
project components, including
setting up and operation of
ESCO, demonstration project,
investment program and
replication measures.
Investment program and project
replication is monitored and
Municipality: $500,000
DH company: $5500,000
Region: $400,000
Private investor: $2,400,000
Foreign banks: $4,800,000
Local banks: $2,100,000
EBRD Financing: $7,000,000
GEF Stage I: $900,000
GEF Stage II: $3,100,000
Total: $21,500,000
Reduction of GHG emission
through replication of the ESCOapproach in other cities.
Promotion of ESCO activities and
their commercial operations
based on performance contracting
mechanism and creation of
energy saving infrastructure in
Ukrainian regions.
Government: $20,000
GEF Stage I: $130,000
GEF Stage II: $30,000
Total: $180,000
Monitoring and evaluation of all
project components, including
setting up and operation of
ESCO, demonstration project,
investment program and
replication measures.
Investment program and project
replication is monitored and
Component
Total
Benefits/ Costs
Baseline
Costs
Municipality: $5,000
DH company: $5,000
Total: $10,000
Global
Environmental
Benefits
Existing institutional and financial
barriers make energy efficiency
investments happen slowly.
Limited reduction of GHG
emissions (0.19 million tons of
GHG reduced over 20 year project
period).
Domestic
Benefits
Limited improvement of energy
efficiency with low financial,
economic and environmental
benefits.
Municipality: $1,105,000
DH company: $1,155,000
Total: $2,260,000
Costs
51
Alternative
evaluated and thus can more
reliably reach their objectives.
Municipality: $25,000
DH company: $25,000
GEF Contribution: $550,000
Total: $600,000
Institutional and financial barriers
to energy efficiency on municipal
level are removed to essential
degree.
Significant reduction of GHG
emissions (1.99 million tons of
GHG reduced over 20 year
project period).
Substantial improvement of
energy efficiency with
considerable financial, economic
and environmental benefits.
Municipality: $1,650,000
DH company: $1,750,000
GEF Contribution: $5,350,000
Government: $20,000
Region: $400,000
EBRD Financing: $7,000,000
Private investor: $2,430,000
Foreign banks: $4,820,000
Local banks: $2,100,000
Total: $25,520,000
Increment
evaluated and thus can more
reliably reach their objectives.
Municipality: $20,000
DH company: $20,000
GEF Stage I: $170,000
GEF Stage II: $380,000
Total: $590,000
Institutional and financial barriers
to energy efficiency on municipal
level are removed to essential
degree.
Significant additional decrease of
GHG emissions (1.8 million tons
of GHG reduced over 20 year
project period).
Significant additional
improvement of energy efficiency
with essential financial, economic
and environmental benefits.
Municipality: $545,000
DH company: $595,000
GEF Stage I: $1,840,000
GEF Stage II: $3,510,000
Government: $20,000
Region: $400,000
EBRD Financing: $7,000,000
Private investor: $2,430,000
Foreign banks: $4,820,000
Local banks: $2,100,000
Total: $23,260,000
ANNEX 9. CRITERIA FOR CONTINUATION TO STAGE II:
A CHECKLIST
Overarching condition: “A sustainable municipal ESCO is fully functional based on cost
recovery from its services and investments from the government, local authorities, and the
private sector.”
Enabling Environment Conditions
 Software for billing/accounting by consumption of energy developed and in use for all
buildings in demonstration project
 Model energy performance contract (EPC) developed and mechanism tested through
pilot measures
 Legislation/regulation allowing the transfer of funds saved through energy efficiency
into the municipal ESCO; i.e., cost recovery scheme developed and implemented
 Funds allocated by the municipality for energy subsidies adjusted
 Requests from at least 2 other municipalities for services (in the form of an official
Letter of Interest)
Financial Institutional Conditions
 Full-scale feasibility study for Stage II investment project completed, including an
analysis of the current business environment in Rivne
 Documents for equity/loan approval processes drafted
 Investment materials promoting ESCO developed and distributed to potential investors
in the relevant language(s)
 Commitments by local stakeholders sufficient to attract external investors formulated
 Investors/financiers for ESCO selected
 ESCO financial agreements signed
 Successful transfer of the savings from the UNDP funds into the municipal ESCO
Other Institutional Conditions
 Pilot municipal company established
 Operational procedures of the ESCO finalized
 Terms of Partnership with the City of Rivne drafted, signed, and shown to be adhered
to during the pilot project
 Supply-side and demand-side measures installed during the demonstration and verified
 Cost performance of energy efficiency measures demonstrated
 Energy savings and emission reductions verified independently
 ESCO staff trained in conducting energy audits and capable of conducting audits
without external support
Note: The above criteria will be assessed during a technical and financial review of the
project based on an evaluation mission by a 1-2-person international expert team at the
conclusion of Stage I. In the event that an item is not achieved but does not jeopardize the
sustainability of the project, the reviewer(s) will need to elaborate.
52